Amazon (AMZN) -) has been one of the stock market's best performers this year.
But even Chief Executive Andy Jassy's most ardent supporters weren’t likely anticipating that Amazon's shares would rally 60% this year or nearly 30% since the end of April.
Real Money analyst Bruce Kamich is one of the few who correctly predicted Amazon's rally. On April 21 he wrote that investors could buy Amazon stock "at current levels” before the e-commerce and cloud-computing Goliath's shares began its multimonth run to new highs.
Kamich recently updated his analysis and his conclusion may raise investors' eyebrows.
Amazon benefits from online shopping and AI trends
Amazon is the de facto e-commerce leader. Its roots trace back to Jeff Bezos founding it as an online bookseller, but nowadays it markets millions of products to millions of customers worldwide every day.
The importance of the company shouldn't be understated. It delivers roughly 584 million items to consumers annually, and the Amazon Prime service has more than 100 million subscribers. Worldwide, it employs 1.5 million people.
But it's not just online shoppers who move the needle for Amazon. It's also the world's biggest provider of cloud-computing solutions, outmaneuvering deep-pocketed peers Microsoft (MSFT) -) and Alphabet (GOOGL) -).
Demand for Amazon Web Services' cloud-computing business, which produced $22 billion in revenue in Q2, is soaring thanks to surging spending on artificial intelligence. As a result, AWS commands a 32% market share. Microsoft and Google's market share are 22% and 11%, according to Statista.
Companies from health care to finance are investing heavily in creating AI applications to increase efficiencies and launch new services. That's a boon for Amazon because much of the training and use of these applications occurs in the cloud on its servers.
Those businesses would be enough to get most interested in owning Amazon shares, but the company also owns Whole Foods, the ninth-largest grocer in the U.S., and its advertising business pocketed $10 billion in the second quarter.
More From Wall Street Analysts:
- An analyst that correctly called the bull market in stocks offers a warning many investors won't like
- Analyst who predicted Nvidia’s rally has a new price target (many investors won’t be happy)
- 'Market Wizard' stock analyst says we've seen the peak in technology stocks this year
Altogether, Amazon is a juggernaut with $134.4 billion in sales last quarter, up 11% year over year, and 65 cents a share in earnings, five times the figure from one year earlier.
Given its size, you might think there's no more room left to rally. That's untrue.
According to the U.S. Census Bureau, e-commerce accounted for only 15% of total retail sales in the U.S. in the second quarter, and CEO Jassy estimates that 90% of information has yet to transition to cloud networks.
Amazon's price charts suggest investors do this
Kamich is a technical analyst who has analyzed price charts professionally for more than five decades. He's seen more than his fair share of bull and bear markets, experience that helps him make sense of price, volume, and technical indicators. He recommended Amazon in April.
Following Amazon's significant year-to-date rally, Kamich reviewed Amazon's daily and weekly charts on Sept. 14 for clues to what might happen to its stock. He also calculated new price targets using point-and-figure charts.
Unfortunately for Amazon fans, Kamich's analysis was bearish.
"Amazon's advance is slowing, and gravity could soon take control of prices," said Kamich. "The trading volume has been shrinking since early May, suggesting that investor interest is diminishing."
Kamich says on-balance-volume — essentially a measure of up minus down day volume — has "been flattening out in recent weeks," suggesting sellers may be outpacing buyers. He also noted that "the 12-day price momentum study shows a pattern of lower highs since late May as the pace of the advance has been slowing."
That's far from what Kamich would want to see to have conviction that the shares were set up for additional upside.
His price targets for Amazon's stock offer little consolation.
The daily point-and-figure chart shows that Amazon has already achieved the upside target of $137, potentially increasing the likelihood investors sell to pocket their gains. The weekly P&F chart also shows that Amazon has exceeded a $129 price target.
Amazon's charts aren't nearly as compelling as they were earlier this year, and its stock price has reached Kamich's previous targets. Those taken together prompt him to say that for active investors, caution is the best bet.
Kamich concludes that investors "should now raise stops to $136" to protect their profits.
Sign up for Real Money Pro to see what other stocks Kamich thinks could be big winners.
